After 7 Bullish Articles, Shanghai Shares End May Down 10%

On a day that China’s stock market concluded May trading in deep losses, the People’s Daily published its seventh article this month arguing for, albeit not always convincingly, a stronger performance.

It looks like the days are gone when influential editorials or opinion pieces disguised as neutral-looking jounalistic articles in official mouthpieces would easily sway investor views and dictate market direction.

At its current level of 2592.15, the benchmark Shanghai Composite Index has accumulated a 9.7% monthly decline and is down from its year high of 3306.75 in January.

The latest “news article” in Monday’s edition bears this headline: “Are Macroeconomic Policies Sending Bullish Signals to a Falling Stock Market?” Using a Q&A format, the article lists three big questions from investors.

Question A: “Is the market’s decline due to economic fundamentals”? Answer: “No need to be overly pessimistic about future economic trends”. Without citing sources, the author, Xu Zhifeng, goes on to say that such economic pessimism betrays “an irrational attitude” on behalf of investors. “At present, the economy is still recovering and is unlikely to suffer a double dip,” says the article. Again, without citing sources, the People’s Daily writes: “Especially after this round of declines, the valuations of the A-share market are already at historical lows and some good-quality stocks are worth long-term investment.” (Well, you don’t get valuable stock picks from the government that often.)

Question B: “Are there bullish signals in the macropolicies?” Answer: “Macropolicies are striking a balance amid fine-tuning.” Elaborating on the point, the article says for example, despite all the uncertainties, “the initial tensions and pressure that the recent property tightening measures have brought to the stock market are fading.”

Question C: “Does the dismal performance of new stock listings suggest the market is hitting a bottom?” Answer: “Yes according to history but case-by-case analysis is needed.” The question and the initial brief answer might be misleading here. The real point that the author is making is that it’s premature to conclude that the recent weak stock debuts (where many share prices fell below IPO levels) show the market is entering a depressed state. Xu argues that the disappointing stock debuts were mostly due to the overly expensive IPOs.

The People’s Daily had run a series of similar market-friendly articles earlier this month, with themes ranging from supportive economic fundamentals to the denial that the launch of stock index futures was the culprit behind a weak cash market.

However, Chinese investors have apparently paid no heed to any of this. Instead, when China Securities News, one of the three industry newspapers serving as mouthpieces for the country’s securities regulator, ran a front-page story on May 20 arguing for a delay in an interest-rate hike, the Shanghai index did react, albeit very briefly, by jumping 0.8%. It closed down 1.2% on the day.

This probably shows how many people are reading the People’s Daily nowadays, compared with the securities papers.

In a sense, Chinese investors’ growing indifference toward such official rhetoric is in itself a sign of progress. In an era when the authorities increasingly use the official media to convey political messages but often run the risk of overloading the information, the investment community is looking for real substance.

That said, the numerous desperate-looking attempts by the People’s Daily to talk up the market also betray the government’s deepening concerns over a slowing economy and weakening capital markets. But in a country where the authorities are still relying on editorials and disguised news reports to influence investor mood while at the same time they have turned the stock market into a piggy bank for poorly-run state-owned enterprises, such as the newest IPO aspirant Agricultural Bank of China, how can investment decisions be based on fundamentals? Perhaps such decisions can’t even be based on politics anymore.

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